GRAPHIC-Global equity funds draw inflows on rate cut hopes, soft US economic data

BY Reuters | ECONOMIC | 05/17/24 07:17 AM EDT

May 17 (Reuters) - Global equity funds experienced strong demand for the third consecutive week, in the seven days to May 15, bolstered by a softer U.S. jobs report and lower-than-expected inflation figures, which increased expectations that the Federal Reserve may begin cutting rates this year.

Investors purchased a net $10.27 billion worth of global equity funds during the week after about $12.54 billion worth of net purchases a week ago, data from LSEG revealed.

Wednesday's data showing a cooling in U.S. consumer prices led markets to quickly anticipate at least two rate cuts this year. However, the enthusiasm diminished later as a recent report indicated a still-tight labor market, and central bankers remained cautious about inflation.

U.S. equity funds secured a substantial $5.78 billion, the largest weekly inflow in eight weeks. European and Asian funds, meanwhile, drew $3.22 billion and $1.37 billion, respectively, in inflows.

Among sectoral funds, the industrial sector accumulated about $732 million, the largest weekly inflow in seven weeks.

Financials and utilities also added $412 million and $348 million, respectively, while tech witnessed a second weekly outflow, worth about $755 million.

At the same time, global bond funds received about $5.58 billion worth of inflows, compared with about $13.41 worth of net purchases in the prior week.

By segment, government bond funds led the way as investors poured about $1.78 billion, the highest in seven weeks. High-yield funds also lured $1.26 billion in inflows, while dollar-denominated medium-term bond funds faced outflows of about $986 million.

Simultaneously, money market funds saw a net $20.42 billion worth of outgo, the first in three weeks.

Among commodities, precious metal funds gained $234 million, their first weekly inflow in three. In contrast, energy funds faced about $74 million worth of net selling.

Data covering 29,558 emerging market funds showed a robust $1.53 billion worth of net purchase in equities, the largest for a week since Dec. 27. Bond funds also attracted about $134 million, snapping a four-week-long selling streak.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Vijay Kishore)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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